On Tuesday, the price of U.S. crude oil dropped below $100 per barrel, its lowest level in two weeks, as the demand outlook was weighed down by coronavirus lockdowns in China and rising recession fears, while a strong dollar made crude more expensive for buyers using other currencies.
U.S. West Texas Intermediate crude ended down $3.33, or 3.2%, to $99.76 per barrel, whereas Brent crude settled down $3.48, or 3.2%, to $102.46 per barrel. Earlier on Tuesday, both benchmarks declined for a second consecutive day, losing over $4 per barrel.
Concerns over aggressive monetary policy tightening and sluggish economic growth caused the major indexes on Wall Street to decline during tumultuous trading.
The energy ministers of Saudi Arabia and the United Arab Emirates lifted Brent and WTI prices by more than $1 per barrel early in the trading session.
John Kilduff, a partner at Again Capital LLC, remarked, "These are volatile times, and the daily price bars are oversized."
"As the EU continues to vacillate about whether or not they would impose an embargo on Russian oil, the math shifts dramatically in both directions," he continued.
On the proposal, the European Union Commission has delayed action. To limit oil imports from Russia, unanimity is essential; however, despite a French minister's assertion that EU members may reach a consensus this week, Hungary continues to oppose an embargo.
In addition, several European economies could experience difficulties if Russian oil imports are further reduced. The European Bank for Reconstruction and Development (EBRD) cautioned that if Russia retaliated by severing gas supplies, rising economies in Europe, Central Asia, and North Africa could regress to pre-pandemic levels.
In addition to the recent G7 restriction on progressive imports of Russian oil, Japan, which acquired 4% of its oil imports from Russia last year, has agreed to discontinue such purchases. Timing and strategy have yet to be determined.
"The combination of COVID-related lockdowns in China and global interest rate increases to combat inflation placed equities investors on the back foot, boosted the currency, and greatly increased economic slowdown concerns," said Tamas Varga of PVM Oil Associates.
Robert Yawger, executive director of energy futures at Mizuho, stated that China is now able to be more selective in its crude oil purchases as a result of a sharp decline in demand caused by market lockdowns and cheap Russian barrels.
President of the Cleveland Federal Reserve Loretta Mester stated that increasing U.S. interest rates in half-percentage-point increments "makes perfect sense" for the next two U.S. central bank policy meetings, whereas Bundesbank chief Joachim Nagel stated that the European Central Bank should raise interest rates in July.
The dollar hovered at a two-decade high ahead of an inflation report that could provide insight into the Fed's monetary policy outlook.
On the supply side, the U.S. Energy Information Administration reduced its predictions for U.S. crude oil output in 2022 and 2023. It now anticipates production to average 11,9 million barrels per day (bpd) in 2022, up from its earlier prediction of 12 million bpd.
According to market sources citing the American Petroleum Institute, crude stockpiles increased by 1.6 million barrels for the week ending May 6, but experts polled by Reuters anticipated a drop of 500,000 barrels.
Euroilstock statistics revealed that European refiners' crude and oil product inventories amounted to around 1 billion barrels in April, a decrease of 10.3 percent year-over-year but nearly the same as March. The statistics revealed that stocks of middle distillates decreased by 15.4 percent year-over-year in April, and by over 3 percent from March.
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